There has been much talk in recent months about how U.S. regulators are stepping up their efforts to better regulate high-frequency trading. We've explored this story from a number of angles this year already, touching on everything from how a newer, bolder Securities and Exchange Commission is preparing to tackle the high-frequency marketplace, to what the global exchanges are doing to fend off abusive high-speed techniques.
But for all the talk about what regulators are preparing to do, a number of former SEC lawyers told the Huffington Post that the nation's largest securities regulator doesn't come close to monitoring even half of the trades that HFTs fire off on a daily basis. And even the measures they're weighing - which we broke down last month – won't be able to effectively regulating high-speed trading.
"It's inconceivable that they can regulate [high-frequency trading]," said Ralph Ferrara, a former SEC general counsel. "There are too many [high-frequency trading] systems; they're all idiosyncratic; they're all different. The SEC is starved for cash, starved for talent. A small-sized hedge fund can outperform the SEC," added Ferrara, who left the commission in 1982 and is now a vice chairman of Dewey & LeBoeuf who specializes in securities law.
Former SEC enforcement lawyer Philip Khinda essentially likens what regulators are doing to someone bringing a knife to a gunfight.
"You've got 21st-century trading strategies and software being monitored by an agency that still only has 20th-century capabilities," said former SEC enforcement attorney Philip Khinda, who left the agency in 1996.As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio
"The commission doesn't have the ability to monitor high-frequency trading, not just in terms of sophistication; it doesn't have the cold hardware to keep up," said Khinda, now co-head of the SEC enforcement practice at Steptoe & Johnson in Washington. "It doesn't have the tools. It's only just begun to assemble them."